Fed rate hike expectations and labor market risks (with Jonathan Ferro, Lisa Abramowicz, Annmarie Hordern)

Aditya Bhave expects three rate hikes in 2026, with a July move in play. He argues the Fed is behind the curve: core inflation is 60bp higher than a year ago while the policy rate is 75bp lower. Labor tightening is not a prerequisite for hikes. He sees upside risks to inflation and a solid labor market.

Yields up , short term, interviewee explicit

explicit

NDX cautious down , short term, interviewee implicit

implicit

RUT

Oil sideways , short term, interviewee implicit

implicit

Metals

USD

Bank of America 8.8
Investment Bank $3040.00B
Aditya Bhave 8.0

Fed rate hike expectations and labor market risks (with Jonathan Ferro, Lisa Abramowicz, Annmarie Hordern)

ndx

Aditya's hawkish Fed view (rate hikes) would tighten financial conditions and likely pressure growth/tech valuations in the near term, implying a cautious downside for NDX.

wti

Aditya does not discuss oil, but his macro view of a resilient economy and Fed tightening suggests oil demand remains stable while geopolitical risks (Iran) are seen as fading, implying sideways.

yields

We expect three rate hikes in 2026, a July move is in play. The Fed is offside: core inflation 60bp higher, policy rate 75bp lower.

16 calls

-1

no reliable edge (random outcomes)

4/17/2026 10:15:26 PM	short term down	7 days later	+2.02%	-2.02%
3/20/2026 4:47:05 PM	medium term cautious down	21 days later	-0.85%	+0.43%
3/19/2026 9:36:59 PM	medium term cautious down	20 days later	-2.23%	+1.12%
2/17/2026 12:42:30 PM	short term cautious down	5 days later	-1.23%	+0.61%
12/12/2025 2:11:07 PM	short term down	7 days later	-0.31%	+0.31%
12/5/2025 12:40:03 PM	medium term cautious down	21 days later	-1.34%	+0.67%
12/1/2025 6:33:31 PM	short term cautious down	6 days later	+2.10%	-1.05%
11/13/2025 8:45:37 PM	medium term cautious down	20 days later	-0.96%	+0.48%
10/29/2025 1:10:31 PM	short term cautious down	5 days later	-0.10%	+0.05%
10/15/2025 6:53:52 PM	medium term cautious down	20 days later	+4.55%	-2.28%
9/18/2025 10:17:17 AM	short term cautious down	5 days later	+0.19%	-0.10%
9/17/2025 6:36:22 PM	short term cautious up	5 days later	+0.39%	+0.19%
9/17/2025 4:38:45 PM	medium term cautious down	20 days later	+0.61%	-0.30%
9/5/2025 10:40:41 PM	medium term cautious down	21 days later	+2.35%	-1.17%
9/3/2025 5:31:38 PM	medium term sharp down	20 days later	-0.69%	+1.04%
8/14/2025 9:14:07 PM	short term cautious down	5 days later	-0.74%	+0.37%

Show all 16 yields results

Asks if the three rate hikes in pencil for 2026 are real.

Jonathan Ferro
Aditya Bhave

Yes, they are in pencil. The data is clear: core inflation is 60bp higher than a year ago, the policy rate is 75bp lower. The Fed is offside. Warsh did not push back against the case for rate hikes — he wants to hike and can blame the previous regime.

The SEP showed no one expects the unemployment rate to come down, so labor tightening is not a prerequisite for hikes.
Asks if it's harder to understand the data or the reaction function.

Jonathan Ferro
Aditya Bhave

The data is clear and has been moving in the direction of hikes. The reaction function is the open question, and people have legitimate disagreements.
Asks if the market is pricing in disinflation because it doesn't believe the Fed is truly hawkish.

Lisa Abramowicz
Aditya Bhave

Hawkish jawboning works to a degree, but if it's just jawboning, the veil will come off and markets will reprice the inflationary impulse. The Fed must either follow through or get lucky on inflation.
Asks if wage inflation is expected to pick up, which is key for the Fed.

Lisa Abramowicz
Aditya Bhave

Wage inflation lags price inflation. The Fed would be making a mistake waiting for wage inflation to pick up. First the labor market tightens, then wages pick up. The risk is the labor market tightens and they are way behind the curve.

Activity data is coincident; labor data is more coincident. Sentiment has not been a good indicator. Bank of America's real-time credit/debit card spending data looks good through mid-June.
Asks what is expected for payrolls on Thursday.

Annmarie Hordern
Aditya Bhave

Expecting 120K private, 110K total payrolls — another solid month above breakeven. The risk is that we cannot keep printing these numbers without the unemployment rate coming down, which would point both mandates in the same direction (inflation upside).

All the Fed needs to do is take back the insurance cuts from last year.
Asks what would make BofA rethink rate hikes.

Lisa Abramowicz
Aditya Bhave

Three things: 1) weak labor data with rising unemployment, 2) weak core inflation prints, 3) a big market correction that makes the Fed worry about financial conditions. Right now they are worried conditions are too easy.

SignalTube

markets at a glance